Market News & Insights
23 May 2018

Sterling Ignores Brexit Headlines With EUR Taking The Hit

The BOE’s Mark Carney released a mixed statement on the UK’s prospective economy performance for 2018 on Tuesday evening. General sentiment indicated that Britain’s economy would ‘bounce back’ following an interrupted start to the year on the back of adverse weather. In terms of immediate impacts, Carney stated that UK households were £900 worse of per year, with the UK economy taking a £40 billion hit following 2016’s Brexit vote. Britain’s economy has grown 1.5% -2.0% below initial forecasts before the referendum result. Carney was also faced with accusations of confusing investor’s with the BOE’s decision to not raise interest rates earlier this month as widely expected, implying that a variation in first quarter performance to forecast resulted in a change of tactic. The statement, combined with fresh ‘anti-May’ Brexit press has generally failed to move sterling with this morning’s upside movement on GBPEUR (1.1426 +0.23%) due to negative Euro-zone data, and GBPUSD downside (1.3376 -0.47%) on the back of the dollars continued run. Today’s focus will lie heavily on this morning’s upcoming UK y/y CPI data release forecast unchanged at 2.5%.

This morning saw a wave of euro Flash PMI data disappoint across the board, particularly both Manufacturing and Services PMI’s coming in below forecast. Immediate reaction was a new 2018 low on EURUSD bottoming out at 1.17009 matching 15th November 2017 lows. EUR is down against all major currencies, most notably EURJPY down 1.5% from open. Investor’s will look closely at tomorrow’s ECB Monetary Policy Meeting for any potential hints on further QE plans, with Italian bonds in the spotlight following the progress of their newly established coalition government between the Five Star Movement and Lega Nord. Long term euro investments have come into question following the proposed economic reform of the coalition with volatility returning across Italian financial markets causing investors to cut their exposure to Italy’s sovereign debt and banks. Tuesday saw Italy’s 10-year yield stabilise at 2.3% following a +0.5% jump over the last fortnight, the highest level since 2014. Looking at the dollar, it has continued its impressive run against all major currencies as the USD continues its destruction of emerging markets, with the Turkish lira in particular hitting all-time lows at 4.90.